The dissolution of the American Manufacturing Council and the President’s Strategy and Policy Forum following President’s Trump comments about the violence in Charlottesville, Va., is a potential upside of last week’s events. As Dan Mitchell explains: “I don’t want companies to do well because the CEOs cozy up to politicians. If entrepreneurs and corporations are going to be rolling in money, I want that to happen because they are providing valued goods and services to consumers.”
Mitchell goes on to quote Robert Litan and Ian Hathaway writing in the Harvard Business Review:
“Most people think of entrepreneurship as being the ‘productive’ kind, as [Economist William] Baumol referred to it, where the companies that founders launch commercialize something new or better, benefiting society and themselves in the process. A sizable body of research establishes that these ‘Schumpeterian’ entrepreneurs, those that are ‘creatively destroying’ the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living. Baumol was worried, however, by a very different sort of entrepreneur: the ‘unproductive’ ones, who exploit special relationships with the government to construct regulatory moats, secure public spending for their own benefit, or bend specific rules to their will, in the process stifling competition to create advantage for their firms. Economists call this rent-seeking behavior. […]
“Do we…see a rise in unproductive entrepreneurship, as Baumol theorized? …James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, ‘political factors’ account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns.” [International Liberty]
